This is a blog entry ostensibly about municipal politics, but with real lessons for the world of business.
I was on CBC radio yesterday (along with corporate governance expert Prof. Richard Lelblanc) to talk about a conflict of interest case involving Halifax’s city council (officially known as the Council for Halifax Regional Municipality).
The Mayor was involved in some financial irregularities that may (I honestly don’t know) just be a matter of either poor judgment or poor understanding of proper procedures. Whatever. The interesting part came when some members of Council wanted to reprimand the Mayor for his role in those decisions. The Mayor insisted on chairing the discussion, and indeed even voted on the matter when it came up for a vote. (Here’s an article about the fiasco, by Michael Lightstone for the Chronicle Herald: “Halifax council won’t suspend mayor.”)
In participating in the vote over his own fate, the Mayor was in a rather significant conflict of interest. He had an official duty to exercise, one that required the exercise of judgment. And he clearly also had a very significant personal interest in the matter, one that would raise suspicion about undue influence on the Mayor’s judgment.
Now it always bears repeating: conflict of interest is not an accusation. It is a situation one finds oneself in. There’s nothing unethical about being in a conflict of interest. (If a lawyer finds out that one of her clients wants to sue another of her clients, she is in a conflict of interest, through absolutely no fault of her own.) What matters is how you deal with the conflict.
The best thing for the Mayor to do would have been to:
- recognize the conflict,
- put it on the table, and
- recuse himself (i.e., hand over the gavel, decline to vote, and preferably leave the room so that the rest of Council could have a full and frank discussion)
What’s really at stake in conflicts of interest has very little to do with the integrity of individuals. Rather, it has to do with the integrity of a decision-making process, and of an institution. So the worry is not that the Mayor would necessarily have been biased in how he chaired Council that evening. Maybe he bent over backwards to be fair in his chairing duties. Who knows? And that’s the point. We don’t know, but for important institutions we need a high level of certainty that key decision-makers are exercising their judgment in the interests of those they serve, rather than themselves.
And there, of course, is the lesson for the world of business, and in particular for corporate governance. A Mayor, effectively, is the CEO of a city. In addition, he or she also is “chair of the board of directors,” where the board here is City Council. In the world of municipal politics, it is relatively rare for Council (normally chaired by the Mayor) to sit in judgment of the Mayor as chief executive. But in the corporate world, such judgment is a big part of the job of a board of directors. And that is precisely why it is widely considered “best practice” for the CEO not to also serve as Chair. One of the Board’s key roles is to advise and oversee the CEO. Doing so requires that the Board be able to deliberate in a way that is reasonably independent from the CEO’s own influence. Any organization that has the CEO act as chair of the very body that must regularly deliberate over his or her own performance is not just “finding” itself faced by a conflict of interest, but is actively constructing one.